In a contract of guarantee, the promise is to discharge the liability of a third person in case of their default. In a mortgage, the contract is for transfer of interest in a specific immovable property for securing payment of money.
In Asset Reconstruction (India) Limited v Mr. Vikas Gopichand Khiyani IA 1302 of 2025, NCLT, Mumbai clarified that both – contract of guarantee and contract of mortgage – create security in favor of creditor for a debt. However, the difference is that in a contract of guarantee there is a personal promise to pay. While a contract of mortgage conveys interest in the property to securitize the debt.